Commission: Our power tariffs among lowest in Asean region
KUALA LUMPUR: The Covid19 pandemic and, subsequently, the Russia-Ukraine conflict have unleashed a crisis in the global electricity industry which has been hit by soaring prices of fossil fuels, namely coal, natural gas and petroleum.
Coal prices, for example, have now exceeded US$200 a tonne. World crude oil prices, meanwhile, have gone past the US$113 per barrel mark, a situation that will continue to drive up world coal prices.
Electricity generation costs, including fuel costs, currently constitute over 65 percent of the basic electricity tariff. Coal and natural gas are used to generate nearly 93 per cent of electricity in Peninsular Malaysia. The surge in the prices of fossil fuels, especially coal, will affect the nation’s electricity industry, with its power generation costs having already seen a 4.5-fold increase.
The pressure on generation costs due to the rise in fuel prices is managed more systematically with the transparency of the tariff system through the implementation of the Imbalance Cost Pass-Through (ICPT) mechanism which allows the costs concerned to be reviewed every six months.
Through ICPT, the government stipulates that in the event of a drop in global fuel prices and generation costs, the savings will be returned to the people as an ICPT rebate. In the case of a hike in fuel and generation costs, the extra costs will be channeled to the people as an ICPT surcharge.
The latest ICPT adjustment for the period from Feb 1 to June 30, 2022, allows domestic electricity users in Peninsular Malaysia to receive a rebate of two sen for every kilowatt-hour (kWh) of power used, while a minimum surcharge of 3.70 sen/ kWh is imposed on industrial and commercial users.
This surcharge was imposed following the increase in fuel costs to RM1.67 billion for the July to December 2021 period, while the average price of coal soared to US$200/tonne.
To ensure that domestic users continue to enjoy the two sen rebate for every kWh, the government has utilised funds totalling RM715 million provided by the Electricity Industry Fund.
Besides that, domestic users also enjoy cross-subsidisation from the industrial and commercial sectors, placing Malaysia among Asean member states that implement this strategy to reduce the burden borne by their people.
(Cross-subsidisation in this context refers to the higher tariff rates paid by the non-domestic sectors to cover the electricity costs of domestic consumers of below 300 kWh for equity balance.)
According to the Energy Commission (EC), one of the factors for Malaysia’s low power tariff rates is its use of a power generation mix to produce electricity.
Pointing to Singapore, it said the republic’s power generation mix mainly constitutes natural gas which has to be imported, whereas, in the case of Malaysia, its generation mix comprises various sources of fuel such as coal, natural gas and solar energy.
“The diversity of its generation mix has allowed electricity generation costs to be more stable in Malaysia, thus enabling it to impose tariffs at reasonable rates.
“Additionally, Malaysia’s electricity tariff rates use the element of cross-subsidisation from users in the commercial and industrial categories to domestic users for the purpose of equity.
“This has enabled Malaysia to impose tariff rates on domestic users that are lower than that charged by other Asean member states such as Singapore where electricity tariff rates are designed based on the actual cost or the reflective cost of electricity supply,” EC told Bernama recently.
Elaborating on this, the commission said it regulates the electricity management system in the peninsula, Sabah and the federal territory of Labuan through the Incentive-based Regulation (IBR) framework.
(The IBR is part of the modernisation of the power supply industry and it was introduced to set electricity tariffs for Tenaga Nasional Bhd [TNB] in early 2014, NUR Power [which supplies power to Kulim High-Technology Park] in early 2017 and Sabah Electricity Sdn Bhd [SESB] in early 2022.)
“The main objective of the IBR mechanism is to protect consumers by ensuring reasonable tariffs for end-users. It also allows utility companies to earn a reasonable return on investment on their power supply infrastructure expenditure.
“Meanwhile, the IBR framework also allows tariffs to be set in a structured, transparent and effective manner by taking into account the utility companies’ requirements for development and operational expenditure in the provision of electricity supply to consumers, subject to EC’s stringent regulatory processes,” it explained. Adjustments to Malaysia’s electricity tariffs are determined by the ICPT mechanism, which is among the main branches of the IBR framework.
The application of this mechanism enables utility companies such as TNB, NUR Power and SESB, as electricity generators and suppliers, to determine the degree of adjustment (increase or decrease) to uncontrolled fuel costs in the electricity generation system through tariff adjustments for a period of every six months.
“This method has its advantages in terms of balancing the needs of the power utility system and electricity users in Peninsular Malaysia.
“The ICPT adjustment is based on the concept of the actual cost of fuel and electricity generation should fuel prices decline compared to the projected fuel costs during the regulatory period. This, indirectly, gives consumers the advantage of enjoying rebates or lower electricity rates.
“If fuel costs decline, the utility companies must transfer the reduction to the users’ accounts by providing rebates. And, if fuel costs rise, then the companies concerned can transfer the increase to users’ accounts via a tariff surcharge,” explained EC.